Zero Savings, Market Crashes, and Bonuses, Oh my!
It goes without saying that to continue to grow, a company needs investments. These investments can come from whatever source is available: personal; close relations; local; private investors; financial institutions; government.
Briefly, historically speaking, Americans were a creditor nation. We saved as much as the best savers on the planet. We saved so much that our national financial position was such that we could lend to other countries. For those skeptical that it works like that, they simply do not know how banking works. The monster it has become is behemoth. In fact, banking knows no national boundaries, locality small nor large scale. In real terms, your little nest egg you think you are saving, could be financing drug lords in Colombia. If you’re at all interesting in banking history go look it up. It’ll shock you, if you don’t know about it.
Let’s get to the topic at hand. So historically we saved. For those who know banking, you know that savings, in the bank’s eyes, is a liability. The bank owes you the money. So they devised a scheme to get you to owe them money. With that in mind we saw an explosion of cheap interest rates, loans and the new “credit card.” We no longer had the bank by the balls, they now have us by the balls.
Ok so instead of saving for retirement, saving for a rainy day, it has become the national habit to spend like drunken sailors. What effect did that have on the economy. Well, it’s really a cause and effect. Where we saved before, businesses were perfectly happy to take out loans, using our savings as their investments, via bank loans. Well what happened when we stopped saving? The shift went from U.S. savings to foreign investments. Remember the scare we had about the Japanese taking over New York and buying up America? That was the clearest line between drawn between decreasing U.S. savings and businesses turning to foreign investors.
The banks won, but at what expense. Yes, we took out loans to buys houses in an ever increasing percentage. What’s that you say? Oh, you thought 100% of the population always took out loans to buy homes? No, they didn’t. In fact, buying a home and paying cash, used to be the norm. The banks, along with the real estate market, has finagled it so that homes COST 10 times what they are worth, forcing 70% of the population to have to turn to banks to finance a home. In fact, the real estate market has gotten so far in bed with banking that now they are their own brokers and lenders. You can hire a realtor, and get financed all by the same person. Let me ask you something. Does that even sound legitimate to you? Doesn’t that sound, sorta, mafioso? The point is, banking has whittled away at the people who saved their money and bought homes outright. And, before you say “those were rich people.” No, everyone did that. That is how it was done. Remember we used to save our money, so saving for a house was nothing.
Let’s get to the present, well, the last 5 years. So we can see by the chart that the U.S. personal savings rate has been abysmal. In fact, if you go back further, you’ll find it was negative. Yes we were overspending what we earned. It has gotten out of hand.
“How does that suggest I’m responsible for the economic crisis?”
I’m glad you asked that question. If you believe that hogwash Bush talked about, national security and foreign investments, your lack of savings directly led private companies and governmental bodies to pander to foreigners, good and bad. From the chart we see savings dipping down to 1% and never reaching higher than 5%. That’s 1 penny for every dollar you made. It is laughable. So investments had to come from somewhere.
No one asks: “why do we have to grow?” Exactly. We don’t have to grow. We’ve been spoon fed this idea that “a stabilized economy is bad.” Why on earth would a stable economy be bad? It wouldn’t. That’s my point. In this continuous effort for progress, we are completely missing the wisdom of stability. please take note that stability does not equal, NOT MAKING MONEY. Stability, simply means a lack of growth or a lack of making more profit than you already are. You understand that concept? It’s called greed. Making a profit alone, is not growth. By design, a business is supposed to profit. It is the spurt that we’re talking about.
This spurt is why firms like Goldman Sachs were over leveraged. This spurt is what motivated the Fed to step in and blow up the economy. This spurt is what drop companies like Lehman Brothers out of business. Reaching for that spurt.
Your lack of savings cause our government to step in and decide that you didn’t know what was best for you. Why? Because you couldn’t afford anything. And, when I say anything, I mean not even food. 75% of the U.S. is big percentages in the red. That means, that they are going to work to simply stay afloat of what they owe. They are not making money. They are working to pay off debts. This debt is so huge that the government now counts it as GDP. In a word, it’s monstrous.
I have said, time and again, if we
- halted the spending
- paid off the debts we owe
- saved our money
- budgeted ourselves
then we would be out of this crisis. And, furthermore, our economy would completely change.
I am shouted down from all sides for saying that. Why? Because they are clueless to how investment and modern banking works. They think my solution is bad because:
- if you halt spending someone will be out of a job
- businesses rely in spending to make money
- saving money reduces the economy not grows it
- budgeting ourselves would deflate the economy
Here’s what they don’t understand.
- First, our current “economy” is based on debt, not growth. And, if you tell them that, they say “yeah we have to keep it afloat.” It’s like saying “keep giving him heroin.” An economy based on debt, is no economy at all. That’s just facts. Our government changed the definition of GDP, to accommodate our complete lack of productivity. We no longer produce anything. We owe money. It’s as simple as you lending your brother money and he says every month, “we have $100 economy between us.” No, he owes you money.
- Second, our current economy is dramatically inflated from what it should be. And this inflation is directly caused by mathematically increasing debt. I mean, it’s not just inflation, which would be a normal occurrence with ever grown populations. I’m talking about direct actions taken by our government and the banks to swell the economy, for their own gain. So deflation is in order, for us to regain stability.
- Third, businesses do not rely on debt to make money. They rely on legitimate purchases and investment. I know I lost some of you with that, so I’ll explain. Our current situation is such that about 80% of the population doesn’t spend money, they simply setup a tab. So instead of them walking into a store and pulling out cold hard cash, they are literally giving an I.O.U. via their bank. Businesses increasingly are taking debt as payment and calculating it, as if they were purchases. They have a long continuous cycle of debt with banks. So, you walk in and swipe your card. The business doesn’t have the money, they have an I.O.U., which they have to settle with your bank. This settlement takes time. People might think “oh that happens in a day.” No, not every business and bank settles their payments in a day. Some can take months or even years. I know, I worked in the industry. Your purchase can be on the books for 2 years. Yes, some store could be holding your stupid I.O.U. for 2 years before being paid by your bank. So this notion that stopping spending will not hurt the businesses, if the result is a halt to I.O.U.s and and start of paying cash.
- Fourth, saving money does not reduce the economy. These very same stores that the idiots were so ready to rescue by spending I.O.U.s would rejoice if people started saving their money. Then a legitimate interest rate would emerge. If savings skyrocketed, the fed could not do anything to interfere. Small local banks would not have to borrow from larger banks, again, stabilizing the economy.
- Lastly, budgeting ourselves would get rid of massive manipulated inflation, rampant in the economy right now. If we all budgeted ourselves, like our grandparents had to do, our economy would boom overnight. But, politicians like to tell you the exact opposite. In fact, they make it seems like it is bad to save your money. Does that even sound logical?
Ways to Save
The biggest thing about saving is that no one, these days, know how to save. I’m sure you’re thinking “come on everyone knows how to save.” Well you’re wrong, and I’m willing to bet, you don’t know it yourself.
- Pay off big ticket items and do not purchase another one, unless the current breaks down beyond all repair: cars, t.v.s, appliances, homes. Yes people don’t understand that those big ticket items are not a bill [i.e. power bill] they are an expense, an expense you can get rid of by paying it off. By paying it off and only repairing it, should it break down, your budget will swell.
- Pay off debts. One of the largest factors that hinders savings, is a staggering amount of debt. Paying off debts in large chunks, will get rid of it and free up your budget once they’re gone. Most people don’t budget and don’t try to pay off their debts in a hurry. It is a horrible personal business practice, to maintain personal debt. You would literally be climbing uphill, instead of walking forward in a progressive manner.
- Make a real budget. Calculate your bills only [i.e. electric bill, etc.]; then any expenses [i.e. car note]; then recurring expenses to live [here is where you have to be an adult and say “mocha lattes are not a necessary food.”] If you’re an idiot that thinks that Starbucks is one of the food groups, then I don’t have time for you. [besides caffeine is a drug and you are drugging yourself, thus creating an imbalance] After you make your real budget, then you can see what trash you’ve been spending your money on. [I highly recommend you cook for yourself, and only eat what you cook] Remember, dollar menus at fast food restaurants are deceiving. They add up to $10.00 in a hurry. With $10.00 you could cook your own meals for 3 nights. [also cooking your own meals is quite relaxing] And, you don’t need the latest ipod craptastic gadget.
- Setup a periodic, ongoing, savings, deposit. That means, every week put $XXX.XX amount into your savings account. As you free up debts and expenses, you increase this amount. This is the sacred ritual you want to continue, even when the economy picks up. Your progress, in your brain, is to increase that deposit amount higher and higher. So you count your success in terms of going from $10.00 weekly to $11.00, $14.00, $15.00, $60.00 weekly.
The fact is, most “investors” [small potatoes guys] fail to open up a simple savings account with a modest interest rate that they continually put into on a systematic periodic basis. Of all the people, they should know the economic benefit to us all, not only to themselves. They’ll save to cash with their broker, who gives them nothing, but not put cash into a simple savings account with 3% interest, with a guarantee of no losses. It’s like a bus driver not knowing how to drive a car.
You did it. You ruined the economy. You closed down the businesses. You melted the job market. Do something about it now. Save your money. Stop spending like a drunken sailor. Teach your kids to save. Don’t owe any man anything. Don’t be one of these schlepts that die leaving nothing but debt to their children.
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